Smith v. Van Gorkom
Delaware Supreme Court
488 A.2d 858 (Del.Sup.Ct. 1985)
Trans Union CEO Van Gorkom personally negotiated a merger valuing the company at $55/share -- a figure with no clear justification beyond the current $38 market price -- and after senior management reacted negatively, the board of directors (defendants) approved the merger at a two-hour meeting based mainly on Van Gorkom's oral presentation, without reviewing the merger agreement, receiving any summarizing documents, or inquiring into the basis for the price. Shareholders (plaintiffs) sued, alleging the board's approval was uninformed, and the Court of Chancery ruled for the directors.
Whether directors may be liable to shareholders for approving a merger without reviewing the agreement and considering the transaction only at a brief meeting.